Another federal judge has weighed the assertions made in an excessive fee suit—and found them lacking both in terms of a “meaningful benchmark,” and specificity of the claims made.
The Suit
The plaintiffs here—Jennifer R. Lard, John G. Juergens, Gerald L. Robinson, Scott W. Anderson, Thomas A. Pitera, Sharon Bradley-Smith, and Toranz J. Plummer—brought suit on behalf of the Marmon Employees' Retirement Plan, alleging violations of ERISA, 29 U.S.C. § 1109 and 1132, by Marmon Holdings, Inc., its Board of Directors, its Retirement Administrative Committee and additional unnamed Defendants. The participant-plaintiffs in this case were represented by the law firm of Capozzi Adler PC.
Marmon Holdings, Inc. is a Berkshire Hathaway company that comprises 11 groups and more than 100 autonomous businesses with total annual revenue of $10 billion. The plan in question has about 14,000 participants at the end of 2020, and approximately $1.1 billion in assets.
In outlining the case (Lard v. Marmon Holdings, Inc., 2023 BL 334461, N.D. Ill., No. 1:22-cv-04332, 9/22/23), Judge John Robert Blakey of the U.S. District Court for the Northern District of Illinois noted that the plaintiffs “allege that Defendants breached their fiduciary duty of prudence by allowing the Plan to pay excessive recordkeeping fees and by retaining ‘poorly performing’ retirement funds,” notably the target-date funds offered by the plan. Judge Blakely noted also that the suit alleged that Marmon and the Board breached their duty to monitor the committee.
Judge Blakely noted that, in order to state a claim for breach of fiduciary duty under ERISA, the plaintiff must plead: (1) that the defendant is a plan fiduciary; (2) that the defendant breached its fiduciary duty; and (3) that the breach resulted in harm to the plaintiff. He also noted that the defendants here did not dispute that they were ERISA fiduciaries. Further, that in order to plead a breach of the duty of prudence under ERISA, a plaintiff must plausibly allege fiduciary decisions outside a range of reasonableness.
Excessive Fee Claims
Regarding the allegations of excessive recordkeeping fees, Judge Blakely commented that the plaintiffs base this theory, in part, upon the claim that all national recordkeepers could provide the same standard bundled and a la carte services to the Plan, and that minor variations in services delivered are immaterial to cost. “Thus, prudent fiduciaries do not negotiate fees based upon a percentage of assets, but rather as a fixed dollar amount per participant.
This prevents a plan from paying increased fees while the plan assets grow, and the recordkeeping services remain constant.” They claimed that "the continued use of Mass Mutual without a significant attempt to reduce these fees resulted in a worst-case scenario for the Plan's participants because it saddled the Plan's participants with above-market administrative and recordkeeping fees throughout the Class Period."
“But according to Plaintiffs' own chart,” Judge Blakely noted, “the Plan's recordkeeping fees decreased every year during the Class Period from 2016 to 2020.” In fact, he noted that though the number of participants increased by 35% during that time, the price per participant decreased by more than 50%. “Notably, total fees paid by the Plan decreased by 34% despite an increase in participants.” And thus, he determined that “plaintiffs' claims are not only unfounded, but directly contradicted by the data they cite in their own complaint. The Plan did not pay ‘the relatively same amount in recordkeeping fees from 2016 to present.’ And Plaintiffs' claim that ‘there is little to suggest’ Defendants conducted a request for proposal to secure cheaper fees during the Class Period, finds no support in the Amended Complaint, considering the Plan's recordkeeping fees decreased year over year.” He concluded that “based upon these facts, the Court cannot reasonably infer that the Plan's continued use of Mass Mutual throughout the Class Period was imprudent, as Plaintiffs would suggest.”
Service Stanchions
As for the notion that the plan’s recordkeeping fees were excessive compared to other, allegedly comparable, plans, Judge Blakely noted that “Plaintiffs fail to allege any facts regarding the services each of those comparator plans offered or the total fees paid by each plan to its service provider. Plaintiffs even acknowledge in the Amended Complaint that the comparator plans offer different categories of services, as described on their Forms 5500.”
He went on to note that a review of the Form 5500s and the first four comparators “shows that none of the comparators reported receiving the same services as Plaintiffs. In fact, Plaintiffs' Form 5500 lists 15 different service codes to describe the services provided by Mass Mutual. In contrast, the four comparator plans list between three and five service codes.” Judge Blakely also commented that the plaintiffs “fail to allege what services the Plan actually provided to participants. While Plaintiffs claim the Plan provided the same general ‘bundled’ services that all plans provide, they fail to state whether the Plan also contracted for any of the ‘a la carte’ services offered by recordkeepers.”
“Finally, Plaintiffs acknowledge, and the Forms 5500 confirm, that the Plan and certain comparator plans received some form of indirect compensation not reported on Form 5500,” Judge Blakely wrote. “As a result of these deficiencies, Plaintiffs' allegations fail to show that the Plan's recordkeeping fees were excessive for the types and quality of services offered. Thus, the Amended Complaint falls far short of the pleading standard outlined by the Seventh Circuit in Hughes II. In short, Plaintiffs here have failed to elaborate beyond threadbare conclusions couched as factual allegations.”
‘Meaningful Benchmark’
With regard to allegations of poor performance by funds in the plan—and an argument that the plan fiduciaries should have replaced them—“given the length of the class period and the nascency of Marmon's TDF funds, Plaintiffs provide total investment return comparisons for 2020 and only for two ‘properly performing’ comparators,” Judge Blakely wrote. He noted that “…courts do not ‘infer imprudence every time a fiduciary retains a fund that fails to turn in best-in-class performance for any specific period,’’’ and that that is “…especially true where, as here, Plaintiffs only compare a single year of returns.’”
He went on to explain that the plaintiffs “fail to provide any support for their contention that the proposed comparators are an appropriate benchmark for the Marmon TDFs. Plaintiffs plead that the two comparators ‘match the goals of Marmon's investment policies,’ but they do not plead any additional qualities of the proposed comparator funds to establish a sound basis of comparison, such as investment strategy, management style, or risk profile.”
“Simply pleading that the comparator funds ‘match the goals’ of Marmon's funds, without providing any additional factual support remains insufficient to establish the comparators as a ‘meaningful benchmark,’” Judge Blakely wrote. And as if that weren’t enough, he continued “The basis for comparison with non-target date funds remains even less robust. Plaintiffs assert that the comparators are ‘peers,’ but they provide no further points of comparison. The only points of comparison the Court can glean from the chart are that, based upon the fund names, the ‘Marmon Int'l Stock’ fund is compared to other international funds and the ‘Marmon SMID’ fund is compared to other small- and mid-cap funds. Without a ‘meaningful benchmark’ to guide the Court's inference, Plaintiffs' claim based upon investment returns fails.”
As for the claims regarding a failure to monitor the committee—“their failure to state a claim for breach of fiduciary duty dooms their failure to monitor claim as well,” Judge Blakely wrote, granting the motion to dismiss the suit, but without prejudice—allowing the plaintiffs to “file an amended complaint within 21 days of this order, if they can, in good faith and consistent with Rule 11 , set forth factual allegations to cure the deficiencies discussed above. If Plaintiffs fail to file an amended complaint by this date, the Court will dismiss this case.”
What This Means
In yet another case from the Seventh Circuit, we have a federal court judge looking for more than mere assertions about fees (and with some above-average understanding of the impact of revenue-sharing offsets) without some correlation to services provided for those fees. Beyond that, it would seem the plaintiffs didn’t do a very careful job of reviewing the Form 5500s of the allegedly comparable plans.
This is not the first judge to apply a stricter scrutiny to the cursory allegations, and to insist on “meaningful benchmarks.” And with luck, he won’t be the last.
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